Cyprus Offshore Companies Have Ceased To Exist

by Lorys Charalambous, Tax-News.com, Nicosia

09 January 2003

Cyprus customs officials confirmed this week that offshore companies and their expatriate employees on the island would no longer have the benefit of being able to import duty-free cars, often worth up to half the cost of a vehicle.

'The rights of acquiring duty-free cars are eliminated from January 1st', said an official, adding that applications received before the end of December, 2002, would be processed as before, with the duty exemption being granted if applicable.

The change is part of measures taken by Cyprus to give equality of treatment to domestic and foreign companies, as required by the European Union and the OECD. As from January 1st a uniform corporation tax rate of 10% applies to all companies, although established offshore companies can continue to pay the old 4.5% rate of corporation tax until the end of 2005, if they choose.

Cypriot Finance Minister, Takis Klerides, said in his October budget speech that the reduction of the corporate tax rate to 10% for both local and international businesses would be likely to boost the economy and enhance the jurisdiction's attractiveness as a location for overseas businesses.

Previously, companies other than offshore (IBC) companies were taxed on their world-wide income if they were registered in Cyprus. Under the new rules, a company is charged to tax on the income accrued or arising from sources both within and outside Cyprus if it is resident on the island (meaning that it is managed and controlled from Cyprus).

Non-resident companies will be charged to tax only on the income accrued or arising from sources in Cyprus, meaning that the island's network of double tax treaties will continue to make it a suitable location for international holding companies, particularly in respect of Eastern Europe, Russia and parts of the Middle East.

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